Korean firms should brace for 'Trump risk': KITA

Fears over a future US decoupling from China and protectionist policies are looming large among South Korean companies as former US President Donald Trump emerges as the potential Republican presidential nominee in this year's election.

One of the most substantial risks of a possible second term for Trump is his "America-first" policy agenda and the many geopolitical uncertainties rising from it, including the US potentially decoupling from China, according to a report released by the state-led Korea International Trade Association last week.

The report contained the agency's analysis of Trump's presidential campaign and policy goals, which Trump calls "Agenda 47," and conservative US think tank the Heritage Foundation's presidential policy recommendations report, "Project 2025."

The Democratic Biden administration has so far pushed for a de-risking drive in relation to China, aiming to reduce risks stemming from excessive economic dependence on China.

In contrast, Trump and the Republican party have called for bringing back the notion of decoupling, which is expected to shake up not just the two countries' relations, but the global order, especially amid intensified supply chain risks.

In the event that Trump succeeds in getting elected for a second term, South Korea is set to face a dilemma between its long-standing security ally US and its top trading partner China, once again, with Korean companies likely to fall victim.

Trump has also pledged to double down on policies that prioritize American interests, including a new 10-percent tariff that could be imposed on all imports to the US, including from South Korea, as there has been no indication of exceptions for existing free trade agreements.

Trump's emphasis on energy security and economic growth over policy to stop climate change is also expected to be a blow to Korean firms. Just as during his first term, the Trump plans to scrap clean energy rules and expand drilling to boost fossil fuels, while cutting back on climate funding raised during the Biden administration.

Trump policy could include the possible abolition of the tax credits from the Inflation Reduction Act that have benefited many Korean electric vehicle manufacturers and battery-makers in building plants inside the US. Trump had openly slammed the IRA as "the biggest tax hike in history" and revealed his plans to dump the scheme if elected.

The Advanced Manufacturing Production Credit by the IRA for the local battery firms last year amounted to over 1 trillion won ($751.37 million), and the figure is expected to almost double this year if the subsidies are retained, industry sources estimated.

Project 2025, a conservative plan to reshape the US federal government to support Trump's agenda if he is elected, has also suggested a stronger trade barrier and strategic decoupling with China, according to KITA.

KITA explained the Heritage Foundation's report can be deemed highly reflective of Trump's potential presidency as, during his first term in 2017-2021, his administration embraced 64 percent of the policy prescriptions that had been made by the foundation.

Meanwhile, a Trump-Biden rematch at the November election is becoming more likely as Trump leads the race for the Republican nomination, recently winning over his remaining Republican competitor, Nikki Haley, in the New Hampshire primary.

"Although the race is still at an early stage where the final candidates of the two parties have not been decided yet, Trump has been winning so far (in the two Republican primary contests that have occurred) and we found it necessary to prepare in advance in accordance to his trade policy proposals," KITA said.